How to Decrease the Amount of Taxes you Pay Year Round

in Tax Deductions

Most people only start to think about their taxes as the April 15th deadline inches closer and closer, but there are actually many things you can do to lower your personal taxes over the whole year. By taking the time to learn these many tactics, you will be able to not only be ready for tax day, but also increase your personal wealth. Following these simple tips and tricks will help build the foundation of positive tax strategy that will last for a lifetime.

The first step to make sure you are paying lower taxes is to take a look at your withholding level. If you received a large refund last year, than your withholding is set too high. The reason that you received a refund is because you paid too much in taxes in advance, essentially giving the government a free loan where they were not forced to pay any interest. Instead, you should let this money work for you instead of the government. The way to do this is to adjust the exemptions you are claiming on your employment W-4. Your employer will allow you to update your W-4 at any time through the year to reflect changes in your life that may affect your tax situation, such as a new marriage or divorce.

Another change that you can do to stop paying so much in taxes is to become more organized with your tax records and create a system for keeping receipts that could be considered deductible expenses. Many people do not claim credits and deductions at the end of the year simply because they have lost the receipt for their purchases. By establishing a system of tracking your deductible expenses, you will ensure that none are forgotten when it is time to take your records to your tax preparation expert of choice. Major tax code changes are announced well in advance, so you should be aware of which expenses you will be able to deduct. The effort is certainly worth the reward as these deductions, such as work related or educational expenses, can quickly amount to a considerable sum.

Lastly, you should make sure that you are taking advantage of all applicable tax programs that could help to reduce the amount you owe. One common mistake that many people make is using a normal savings account for retirement money instead of a traditional IRA. Depending on your income level, you are allowed to deposit up to $5,000 into an IRA that is untaxed. This means that every dollar you put into an IRA reduces your taxable income, therefore reducing the taxes you pay.

Saving money on taxes needs to be important throughout the year rather than just when the tax deadline is approaching. Using these tips as well as other tax strategies, you should be able to position yourself to only be responsible for the minimum amount of taxes that you must pay. A visit to a qualified tax professional will help to find other ways to reduce your yearly taxes to manageable levels.

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